Agreement reached between Germany and Greece

Greece’s Aid Extension achieved:

The weeklong tennis match between Germany and Greece seems to have finally found an end. On Friday, Feb. 20, the finance ministers of the 19 euro-area met in Brussels in an effort to find a mutual settlement about Greece’s bailout program that resulted in an agreement to extend aid to Greece for four months.

After an intensive week of daily meetings and throwing new proposals back and forth, Greece will keep receiving inflows of financial aid in return for a commitment to continued economic reforms. However, Monday evening and Tuesday morning will show if the mutual deal will be successfully put into action. Greece has to meet certain conditions and, therefore, submit a list of measures on Monday.

“We stood up right from the beginning of the negotiations to the very end. Especially when faced by immense pressure, and we showed that we were committed to skillful negotiations for the purpose of achieving a mutually beneficial agreement between us and our European partners,” said Greek Finance Minister Yanis Varoufakis at the news conference in Brussels after the 19 euro-area countries meeting.

Week’s Flashback:

It has been an ongoing rollercoaster ride for months amidst disputes and signs of hope; followed by an exhausting week of attempts to resolve the clash over Greece’s bailout program. Greece’s finance ministry aimed at an anti-austerity program including a six month aid extension. On the other hand, German finance minister, Wolfgang Schaeuble, is striving to stick to the austerity plan in an attempt to achieve shrinkage in Greece’s decade-long, growing budget deficit.

Germany is the biggest country contributing to Greece’s 240 billion-euro rescue. Without an agreement nor implementation for extending Greece’s bailout program, Prime Minister Alexis Tsipras’ government may risk receiving no financial aid. They would be left with no cash beginning March as Greece’s bailout program would officially expire at the end of this month, Feb. 28.

“Grexit”

In the course of achieving a consensus, a risky possibility of a “Grexit” has aroused since December; implying the possibility of Greece leaving the Eurozone and reducing the members to 18 countries. If Greece’s list of measures does not get approved on Monday, Feb. 23, and possibly results in Greece exiting the Eurozone, Germany will possibly experience a fair amount of hardship. Greece, the Eurozone’s weakest country, could run into a financial disaster if it is cut off from financial markets and aid due to the separation.
As a result, the rise in the euro-area consumer confidence on Friday, Feb 21, indicated a slow recovery from the latest signs of a deflation. Consumer Confidence rose from minus 8.5 in January to 6.7 in February while gross domestic product (GDP) also showed an incline. These positive numbers are a result of the consistent decline of oil prices, the weakening of the euro that caused an increase in export, and a decline in import. Therefore, an increase in GDP, as well as the eagerly-anticipated monetary stimulus package, known as Quantitative Easing, from the European Central Bank starting in March should support growth through 2015.

Effects on U.S. Stock market:

Standard & Poor’s 500 Index and the Dow Jones Industrial Average spiked after the eagerly anticipated news about Greece’s bailout program extension were released Friday evening. S&P 500 jumped 0.6 percent to 2,110.30 while the Dow achieved an all-time high with 18,140.44 through a 0.9 percent (154.67 points) increase. The Russell 2000 Index as well as the NASDAQ Composite have also shown an upturn.

Article submitted by Yanis Varoufakis of the Capital Markets Lab. To learn more about the Capital Markets Lab please visit their web site http://business.fiu.edu/capital-markets-lab/.